State v. State Mut. Life Assur. Co. of America

• Decision Date: 17 January 1962
• Docket Number: No. A-8417,A-8417
• Citation: 163 Tex. 240,353 S.W.2d 412
• Parties: STATE of Texas, Petitioner, v. STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA, Respondent.
• Court: Texas Supreme Court

Page 412

353 S.W.2d 412

163 Tex. 240

STATE of Texas, Petitioner, v. STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA, Respondent.

No. A-8417.

Supreme Court of Texas.

Jan. 17, 1962.

Rehearing Denied Feb. 21, 1962.

Will Wilson, Atty. Gen., Fred B. Werkenthin and C. Dean Davis, Assts. Atty. Gen., for petitioner.

Dan Moody Austin, Webster Atwell, Dallas, for respondent.

CALVERT, Chief Justice.

Suit is by The State of Texas to cancel the license or certificate of authority of respondent to do business in this state. Cancellation is sought because of alleged violation of Sec. 4, Art. 3.50, Texas Insurance Code, V.A.T.S., in the making of contracts of insurance, unauthorized by Art. 3.50, 'covering a group in this State'.

The trial court ordered all permits, certificates of authority, etc. heretofore issued to respondent cancelled, but further provided in its judgment that the order of cancellation should not issue if, 'after ¹ thirty (30) days from the date' the judgment became final, or, in case of appeal, thirty days after mandate of affirmance was received from the appellate court, respondent should cancel and withdraw 'all present coverage of group life insurance extended to Texas citizens who are members of the National Association of Securities Dealers'. The Court of Civil Appeals reversed the judgment of the trial court and rendered judgment that the State take nothing by its suit. 345 S.W.2d 325.

State Mutual is a Massachusetts corporation with its home office in that state. It writes all standard forms of ordinary and group life, individual and group accident and health, and other types of insurance contracts. It has held a permit or certificate of authority to do business in this State since 1935, and since that time has engaged in the business in this State of selling contracts of life insurance, health and accident insurance, and annuities through agents maintained in this State. The National Association of Securities Dealers in incorporated under the laws of Delaware, as a national securities association. It has offices in Delaware and Washington, D. C. As of November 30, 1958 it was comprised of 3870 member firms in 49 states and the District of Columbia, with 192 member firms in Texas.

In 1948 National Association of Securities Dealers and certain named individuals, as Trustees, executed a Declaration of Trust by the terms of which an insurance trust was created for the purpose of effecting and administering a plan of group insurance, submitted and proposed by respondent, for NASD's member firms and their employees. The Trustees mailed applications for group life insurance and group accident and health insurance from NASD's office in Delaware to State Mutual's office in Massachusetts, where the applications were accepted and group policies were issued and mailed to the Trustees in Delaware. Twenty-five Texas member firms of NASD have applied for and received coverage under the group policies for their firm members and their employees. The group policies were, and are, valid under the laws of both Massachusetts and Delaware. They would not have been valid in Texas had they been executed and delivered in this State because Art. 3.50 does not authorize group insurance for members and employees of members of a trade association. ²

Under the provisions of Section 1, Art. 3.50, Texas Insurance Code, group insurance may be written in Texas for only four groups: 1. For employers with, and insuring, 10 or more employees. 2. For labor unions insuring their members. 3. For independent school districts and other agencies, departments, etc., of the State government insuring their employees. 4. For creditors insuring their debtors. This court has held expressly that contracts insuring the employees of members of trade associations are unauthorized. Board of Ins. Com'rs v. Great Southern Life Ins. Co., 150 Tex. 258, 239 S.W.2d 803.

But it is the contention of State Mutual that although the Texas statute may prohibit the execution or delivery in Texas of contracts of insurance covering trade association groups in Texas, the state does not prohibit the coverage of trade association groups in Texas by contracts of insurance executed and delivered in states where that type of group insurance is legal. This contention is negated by the plain and unambiguous language of Sec. 4, Art. 3.50. The section reads:

'Except as may be provided in this article, it shall be unlawful to make a contract of life insurance covering a group in this State, and the license to do business in Texas of any company making a contract of life insurance covering a group in this State except as may be provided in this article may be forfeited by a suit brought for that purpose by the Attorney General of the State of Texas at the request of the Board of Insurance Commissioners.'

Moreover, to sustain State Mutual's contention would be to destroy the effectiveness of Art. 3.50 and to make a mockery of its purpose and intent. It is not suggested that State Mutual and NASD undertook to evade the requirements of Art. 3.50 by selecting states where insurance contracts covering trade association groups are lawful as the situs of their principal contractual activities. Obviously they did not do so. But the necessary net effect of sustaining the contention would be to send all parties wishing to effect non-conforming group coverage in Texas scurrying for states for contract execution where the contract would be lawful and valid. We reject respondent's contention and hold that Sec. 4 of Art. 3.50 authorizes cancellation of the license to do business in Texas of any company which executes and delivers anywhere a contract of insurance covering an unauthorized group in Texas, irrespective of the validity of the contract where executed and delivered.

Respondent asserts that construction and application of Art. 3.50 to the facts before us so as to authorize cancellation of its permit to do business in Texas violates the due process, full faith and credit, and commerce clauses of the United States Constitution. That contention must be rejected. Pertinent to our consideration of the contention in addition to Art. 3.50 is that part of Art. 21.43, Texas Insurance Code which reads:

'The provisions of this code are conditions upon which foreign insurance corporations shall be permitted to do business within this State, and any such foreign corporation engaged in issuing contracts or policies within this State shall be held to have assented thereto as a condition precedent to its right to engage in such business within this State'.

The problem posed is as to the power of The State of Texas to condition State Mutual's right to continue to do business in Texas on its cancellation of coverage as to groups in Texas of group insurance policies which are not authorized by Art. 3.50. With the problem thus stated it seems in order to observe that such cases as Allgeyer v. State of Louisiana, 165 U.S. 578, 17 S.Ct. 427, 41 L.Ed. 832; New York Life Ins. Co. v. Head, 234 U.S. 149, 34 S.Ct. 897, 58 L.Ed. 1259; St. Louis Cotton Compress Co. v. State of Arkansas, 260 U.S. 346, 43 S.Ct. 125, 67 L.Ed. 297; Hartford Accident & Indemnity Co. v. Delta & Pine Land Co., 292 U.S. 143, 54 S.Ct. 634, 78 L.Ed. 1178; Boseman v. Connecticut Gen. Life Ins. Co., 301 U.S. 196, 57 S.Ct. 686, 81 L.Ed. 1036, and State Board of Ins. v. Todd Shipyards Corp., Tex.Civ.App., 340 S.W.2d 339, writ refused, n. r. e., with per curiam opinion, Tex., 343 S.W.2d 241, certiorari granted, 368 U.S. 810, 82 S.Ct. 40, 7 L.Ed.2d 20, cited by State Mutual, and Metropolitan Life Ins. Co. v. Wann, 130 Tex. 400, 109 S.W.2d 470, 115 A.L.R. 1301, International Brotherhood of Boilermakers, etc., v. Huval, 140 Tex. 21, 166 S.W.2d 107, and Watson v. Employers Liability Assur. Corp., 348 U.S. 66, 75 S.Ct. 166, 99 L.Ed. 74, cited by the State, are not strictly apposite. None of them are cases which call into question the power of a state to refuse to grant a local permit to do business to a foreign insurer, or to cancel a granted permit, because of violation of, or failure or refusal to comply with, local regulations. These and other like decisions bear only indirectly on the problem before us. They are only important in determining what local regulations as applied to foreign insurance contracts impinge upon constitutional rights, and are relevant to the problem here, if at all, only because the granting or continuance of a local permit to do business may not be conditioned on compliance with unconstitutional regulations or on surrender of constitutional rights. Allgeyer v. State of Louisiana; St. Louis Cotton Compress Co. v. State of Arkansas and State Board of Ins. v. Todd Shipyards Corp. each involved an effort by a state to enforce a penalty or a tax in the nature of a penalty against a local citizen or corporation for making a contract of insurance in another state with a foreign insurer not having a local permit to do business. All of the other cited cases involved efforts in suits on foreign contracts of insurance to enforce local statutory rights of the insured which, if enforced, would have had the effect of modifying contractual rights of the insurer which were valid in the state where the contract was made or was to be performed.

Somewhat more directly related to the problem as we have stated it are Osborn v. Ozlin, 310 U.S. 53, 60 S.Ct. 758, 84 L.Ed. 1074, and Hoopeston Canning Co. v. Cullen, 318 U.S. 313, 63 S.Ct. 602, 87 L.Ed. 777, cited by the State. Osborn v. Ozlin was a suit to enjoin the enforcement of penalties, including revocation of the license of a corporation to do business in Virginia, because of failure to comply with statutes regulating the writing of certain types of insurance and the payment of commissions to agents in Virginia. Hoopeston Canning Co. v. Cullen was a declaratory judgment suit in which foreign reciprocal insurance companies sought a declaration that they were...